Over the last few economically stagnant months, a new explanation has emerged for why businesses are reluctant to hire more workers and otherwise gear up for recovery.
The reason, you see, is "uncertainty." The idea seems to be that Washington's will-they-or-won't-they dithering over extending the Bush tax cuts, the advent of healthcare reform, financial reform, etc., etc., etc., has unsettled the business landscape so horribly that decision makers are huddled under duvets, gnawing their knuckles in fear and bewilderment.
This argument raises a number of important questions. The first is: When did American business leaders turn into such wusses? This nation spent three decades facing the threat of nuclear annihilation from the Soviet Union. That was uncertainty, and it hovered over the most prosperous period in our history. Now CEOs are crabbing about not knowing if their top marginal federal income tax rate will stay at 35% or rise all the way to 39.6.
In an op-ed round robin hosted by The Times' editorial board last month, a USC business professor listed among the uncertainties killing confidence that "businesses don't know what will happen to interest rates."
But businesses never know what will happen to interest rates, any more than I know who'll be in the next Super Bowl. No one who knows what will happen to interest rates has to run a business at all; he can just sit back and play the bond market with perfect knowledge, and become the richest person in the world.
The principal retailer of the "uncertainty" trope is the U.S. Chamber of Commerce, which trots the term out so frequently you'd think it collects a royalty for every repetition by a commentator on, say, CNBC. But the chamber's "certainty" isn't the one you find in the dictionary, which defines it as "freedom from doubt; confidence; sureness." The chamber's definition of "certainty" is "less regulation; lower taxes."
How do we know this? Consider the form letter the chamber asks members to send to Congress, urging the lawmakers to "end the tax uncertainty plaguing the business community" by extending the Bush tax cuts. According to the dictionary definition, "uncertainty" over taxes could be ended by letting the tax cuts lapse, or by voting to extend them for the middle class but not for the wealthy. The chamber's lexicon doesn't recognize the latter outcome.
One wonders where the chamber gets the idea that uncertainty about taxes and regulation is such a big deal for business. If you listen to what actual business owners are saying, what's mainly holding back hiring and expansion isn't regulatory "uncertainty," but lack of demand.
For more than a year, the monthly small-business economic trends survey of the National Federation of Independent Business has listed "poor sales" as business' single biggest problem. In the most recent survey, that factor was listed by 30% of respondents, swamping "taxes" (20%) and "government requirements and red tape" (17%).
That's important because the policy responses to "regulatory uncertainty" and to poor demand are very different. In the first case, you kill consumer protections, eviscerate oversight of industries such as oil drilling, mortgage and securities trading and healthcare, and shift the tax burden downward toward the middle class — in chamber-speak, that's called "broadening the tax base."
In the latter case, you might want to spur demand by extending unemployment coverage, enacting more stimulus and not needlessly scaring people about their Social Security retirement, which only provokes them to cut back on spending now. You might also want to avoid imposing a government wage freeze at this particular moment, as President Obama has just proposed.
What really gives the lie to the "uncertainty" argument is its long history. The idea that federal regulation, taxation and deficit spending unnerved business to the point of paralysis was aired out in the '30s. It was dismissed then by no less a figure than Joseph Schumpeter, the herald of the entrepreneurial age and the conservative economist least likely to be mistaken for John Maynard Keynes. Schumpeter pointed to the argument as one of those that "fully merit the shrugging of shoulders with which they are usually met."
These days, the "uncertainty" argument relies on the claim that regulation is out of control, and about to get worse. This summer the American Enterprise Institute threw a fit when it discovered that the new financial reform act came to 2,319 pages. The bill that created the Federal Reserve system was only 31 pages, it observed, adding: "The numbers pretty much speak for themselves."